The literature suggests that important strategic initiatives can derive from employees
within the organization as they respond to needs and opportunities observed in daily
operations. This seems to indicate that employees have a good sense of the firm’s
operational capabilities observed through direct interactions with colleagues, customers
and partners. Executives make their own judgments about the corporate capabilities
from discussions with various managers, other executives and industry specialists. But,
the information gathered by executives may be qualitatively different from the
conditions sensed by the employees. So, we arranged a contest between operational
capabilities assessed by employees and executives and the relationship to subsequent
firm performance. Based on more than 400 individual data points collected from two
medium-sized organizations over a period of eighteen months, advanced distributed lag
time-series analyses show that the sensing of front-line employees (surprisingly) is a
better medium-term predictor of organizational performance than executive judgments.
These results have implications for the way organizations set up their management
information and communication structure.